Since the outbreak of the COVID-19 pandemic and the introduction of bounce-back loans, increased numbers of businesses have applied for the emergency loans and then subsequently dissolved the business. This widespread practice was recognised by the government, which led to the introduction of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021. This Act extended the powers of the Insolvency Service (IS) to seek disqualification orders against directors of companies that were dissolved
As a result of this new law, the IS recently reported an increase in the number of applications for director disqualifications. In each case, companies had obtained bounce-back loans, which were then dissolved without becoming insolvent, leaving the loans unpaid.
The Act amends the provisions of the Company Directors (Disqualification) Act 1996, which previously only applied to directors of companies who had entered the insolvency process. A company can be dissolved in many ways, including by an application by its directors. In theory, a dissolved company that has not been declared insolvent can be restored. Once restored, they can be put into insolvency, thereby activating the 1996 Act, allowing for disqualification orders against rogue directors.
The IS adds that it is considering seeking Compensation Orders (CO) as a means of recouping the outstanding loans. Introduced in 2015, CO’s enable the IS to seek an order (as well as a disqualification) against directors to compel them to pay compensation where their conduct has or may have caused a quantifiable loss to creditors. The new Act extends the remit of COs in similar ways, where companies have been dissolved without entering insolvency.
The article is for informational and educational purposes only and should not be relied upon as legal advice.
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